South Korea is finally addressing its notoriously high tax rate – about 60 percent at the maximum rate including various surcharges in case of stock inheritance -, but it may end up easing the burden through extended grace or installment period instead of outright lowering the rates.
In outlining additional amendments to the revised tax code for this year, the finance ministry added it would be outsourcing study to comply with the legislative advice to improve inheritance tax system.
“We do not have a direction yet. We will be able to include it when we announce tax code changes for 2022 in July,” said assistant minister Yim Jae-hyun in charge of taxation.
Calls to ease inheritance tax in a country where family-owned conglomerates make up the bulk for the economy were renewed after the heirs of Samsung Group face inheritance of over $10 billion after the death of Samsung Group patriarch Lee Kun-hee.
The government and liberal ruling party in principle are against pushing down the inheritance tax with maximum rate at 50 percent that goes up to over 60 percent when surcharges on major shareholders and stock gift are included.
During discussions at the National Assembly, Kim Yong-beom, first vice finance minister, argued the actual tax burden goes lower from various deductions.
“Lowering the tax rate should be approached carefully,” Kim said.
The government instead may opt to allow greater grace period and exemption cases.
A bill to expand the scope of small- and mid-size enterprises subject to the business succession tax deduction system from 300 billion won in annual revenue to 1 trillion won has been raised at the National Assembly.
Conglomerates demand for more bold measures such as deferred payment and exemption benefits to ease actual inheritance tax burden. Last year, the government reduced mandatory management period after inheritance from 10 years to 7 years through revision but the conglomerate circle is demanding further reduction to 5 years.
The government may also consider the option of easing the yearly installment payment system. Under the current system, owner families are obliged to pay inheritance tax over five installments over 5 years after the first payment. The option involves expanding the period to 10 or 15 years.
By Chun Gyung-woon, Yang Yeon-ho, and Lee Eun-joo
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